Sue Gray is set to present her report this week. Boris Johnson’s fate may hang on it. But whether he stays or goes, the cost of living crisis will remain. Britain faces the biggest drop in living standards since the 1950s. And the Government seems to have no agreed plan for what it wants to do or who it wants to help.
Some MPs want benefit rises. Others want tax cuts. For some, axeing green levies is the priority. For others, reductions in VAT. For others still, transferable allowances for families. Cabinet Ministers are freelancing over a windfall tax. This is nature abhorring a vaccum with a vengeance.
Essentially, there are two schools of thought. To the first, the main enemy is rising prices. Those who believe this tend to want tight monetary and fiscal policy. To the second, it is low growth. Those who hold it look favourably on looser monetary and looser fiscal policy, though not necessarily at the same time.
Enter a variant of the second school, as expounded by our columnist, John Redwood. Essentially, he makes the agonising choice between more borrowing, and the higher interest rates that could come with it, and less spending or more taxes vanish – “just like that”.
This is because Treasury forecasts are consistently wrong, and the deficit came in “at £90 billion below the Office for Budget Responsibility and Treasury forecast”. It follows that Rishi Sunak could use some of that £90 billion before the autumn to help people meet the cost of living. Which is indeed what most Conservative MPs want him to do.
If this sounds a bit too good to be true, that’s because it is – in a certain sense. Any windfall spent now is one that can’t be spent later (assuming it’s still there). So the Chancellor would be splashing the cash this year, with the last feasible election date some eighteen months off.
And, of course, money spent now can’t be used to pay off debt. Furthermore, if Sunak goes on a spree, voters won’t be grateful: they never are. That, after all, is a lesson of Coronavirus. In any event, the Treasury disputes rosy inflation and interest rate forecasts – arguing that at four per cent of GDP the deficit is stubbornly high.
Nonetheless, voter need requires Sunak to present a package, whatever the party politics. With poverty for working families hitting a record high, and almost a fifth of adults having less than £100 in savings, and one in five families facing fuel poverty, the Chancellor will act before the energy price cap rises again in the autumn.
Having cleared the first hurdle (in other words, decided to present another mini-budget), Johnson, Sunak and company will face the second – namely, determining who it will most aim to help. Here, the answer is straightforward and uncompromising: those in most need of it.
That means voters who have less room, if any, to cut back their household commitments. They would be helped by a further Council Tax cut for lower bands, extending the warm homes discount, shifting green levies from household bills, and uprating Universal Credit: remember, some 40 per cent of those who receive it are in work.
Raise moral hazard or work disincentives all you like: special help in hard times will always start from the poorest up. Though it won’t stop there: many of those on Universal Credit, for example, are Nick Timothy’s “just about managing”. This is a programme for Erdington as well as Easterhouse.
If that sounds discouraging for Conservative voters in Blue Fade seats, or for those clamouring for a cut in the standard rate of income tax now, I have if not exactly good news now then at least the prospect of some later – if they’re interested in the higher growth that helps to fund spending increases and tax increases in the first place.
The first bit is that boosting growth has at least as much to do with supply as demand. That means Jacob Rees-Mogg, who has made a start in efficiencies with his plan cut civil service numbers, streamling regulation. He has an entire report by Iain Duncan Smith, Theresa Villiers and his colleague George Freeman to draw on.
Its menu covers everything from risk margins in Solvency II through deploying low-carbon technologies on to the National Grid and repealing the EU Clinical Trials Directive to scrapping the Port Services Regulation 2019 to remove
unnecessary, EU-derived regulatory burdens on UK ports.
The biggest supply-side issue of all is housing – the shortage of which harms family life, slows labour mobility and lowers wages. Michael Gove is tasked with squaring the circle of winning local consent, raising home ownership – and building more houses. Then there are Sunak’s own productivity-boosting plans.
The second slice of better news is that the Chancellor may be able to persuade the markets that more borrowing and tax cuts should bear no interest rate penalty (whatever is done with a Windfall Tax). The condition is that these are clearly focused on boosting growth rather than consumption.
On spending, that would imply more for infrastructure, especially in provincial England, for science and technology, and for skills – for example, the rebalancing between academic and vocational courses that the Government wants to see. On tax, that would suggest cuts for business and workers.
Some of those cuts, if there is enough of that £90 billion left to draw on, could simply be cancelling increases – including the Health and Social Care Levy and, if Sunak can find no convincing replacement for the “super-deduction”, scrapping the Corporation Tax rise.
Rob Colvile wrote yesterday about the negative signal that the rise sends to business and, as so often, the message is almost as important as the detail (such as the rate at which the tax will take the most revenue). This takes us to the Prime Minister and the Chancellor.
Sunak is able to detail a mass of spending to which he is already committed. What he and Johnson have not yet done is roll these up into a package and a message. Remember George Osborne “not balancing the budget on the backs of the poor”? His “long-term economic plan”? “We’re all in this together”?
Johnson and Sunak need a message. Voters will roll up their sleeves and stick it out if they think the Government has a plan for the country, as they did after 1979 and 2010. My starting bid is: “we are helping hard-working people and going for bigger growth”.
I appreciate that many voters don’t know what growth is, and that my draft needs rather a lot of work. But at least it’s a start. What alternative is there? Ministers could sit on their hands and do nothing this year. Or seek to please the right-wing entertainment industry with performative tax cuts.
Sunak tried a bit of that in his Spring Statement – and look where it got him. Mention of Sunak leaves me with a riddle. The non-dom row has sapped his authority. A Government needs its Chancellor to command fear. Sunak may do so once again one day, and revive his status as a potential Conservative leader, but at present he doesn’t.
The puzzle is that, on the one hand, Johnson wants a big animal at the Treasury, to deliver for the Government. And that, on the other, he doesn’t, since such a creature would be a threat to him. I leave this conundrum for our readers to solve.